Mod it.
I helped a pal replace the hard drive and install a mod chop in his so he could store games directly on the drive among other things. But now he uses Evol-X to keep track of his MP3s, Mpegs, and turned his X-box from just a gaming console to a full multi-media center.
I don't know if you can just replace a hard drive without the mod chip. I'd keep that in mind.
If you can follow directions and use a soldering (Is that how you spell that?) gun you can do this yourself. TechTv has a pretty good article here:
http://www.techtv.com/screensavers/h...420568,00.html
If you still feel you can't do this....Do you have any friends who might feel a little more comfortable with this?
Microsoft obviously isn't going to fix it, and you're not going to be able to resell it, so I'd just take the chance and try and fix it yourself.
Good luck and keep us posted.